Capacity crunch

24 April 2006

When Sheikha Hanadi al-Thani, chief executive officer (CEO) of the Al-Waab City development in Doha, was asked in late March for the biggest single challenge she faced in implementing the $1,000 million real estate project, her response was immediate: 'Finding contractors.'

Although capacity constraints are perhaps most acute in Qatar, Sheikha Hanadi's concerns are echoed by clients right across the Gulf. 'A lot of consultants and contractors simply don't have the capacity at the moment,' says James Wilson, CEO of Dubai-based Nakheel Hotels & Resorts. 'We need more contractors, and more experienced contractors.'

The shortfall in capacity is hardly surprising. The last five years have seen the GCC indulge in an unprecedented project binge, made all the more remarkable by its modest population. The numbers speak for themselves. In mid-April, the total value of Gulf projects tracked by MEED Projects crossed the $1 trillion mark. Just 18 months ago, the figure stood at $277,000 million (see box).

Traditionally, the Gulf projects market has relied on a diet of oil and gas-related schemes supplemented by government funded infrastructure development. That all changed at the start of the new millennium, when Dubai launched the Palm Jumeirah scheme and announced that expatriates would be able to buy property for the first time. At a stroke, the touch paper was lit for an explosion in real estate projects.

The change in Dubai property legislation, coupled with the start of the oil price rally, produced a heady cocktail. The proliferation of mega-projects in Dubai was soon replicated right across the region. 'The economy has evolved over the last few years, oil prices have created a lot of liquidity in the region and people are searching for opportunities for investments,' says Hashim al-Dabal, CEO of Dubai Properties.

Although the number of projects has grown exponentially, the number of contractors has remained relatively static. And with so many projects now under way, clients are struggling to attract bids from consultants and contractors alike. This does not just apply to Dubai, which has sucked in contracting capacity from across the region over the past two years, but also to other GCC markets, where in places such as Abu Dhabi, Kuwait, Qatar and Saudi Arabia, construction activity has still to reach its peak.

The developer behind Saudi Arabia's $26,000 million King Abdullah Economic City is only too aware of the issue. 'We are concerned with capacity constraints, because the kingdom is trying to develop lots of different places,' says Issam Galadari, managing director for Saudi Arabia at Dubai-based Emaar Properties. 'But we will have to cope. We have talked to international contractors to ask them if they are willing to come, and they are keen to look at the different components of the project.'

Public sector clients employing traditional procurement methods have been hit hard by low contractorturnout. At Dubai's Roads & Transport Authority, which has launched a massive highway overhaul programme to alleviate the emirate's chronic traffic problem, a handful of recent tenders have failed to attract a single bidder: on some others, only a couple of bids have been received and even they have come in well above budget. Invariably, the result is a retender, which means further delays for vital infrastructure.

The private sector has not fared much better. Prestigious projects such as the Fairmont hotel and resort project on Palm Jumeirah only attracted one bid after other potential bidders picked up work elsewhere. 'Dubai changes a lot and tendering and negotiations can take months. In this time, a contractor may take on new projects or, as developers do from time to time, change its strategy,' says Al-Dabal.

Capacity issues are not limited to main contractors. The whole supply chain is struggling to meet demand. Specialist subcontractors, involved in a

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications